Using forecasts and scenarios in strategic planning

One of the biggest travesties to me in strategic planning – yes, I know I’m being dramatic – is that companies do not incorporate economic forecasts and scenarios into their strategic plans.

I don’t count mentioning the outlook in the background section when you’re setting the tone for the rest of your plans. To me, that’s like when you’re interviewing someone and you ask about their education. It’s an ice-breaker. It is only relevant if they’ve learned something practical and can put it to good use in your organisation. Otherwise, you’re just giving them an opportunity to relax a little. Many companies use economic forecasts in the same way: as introductory material to break the ice and help other people relax in the knowledge that they’ve given this a little thought.

Another common use is as an item to check off a list, which happens frequently in institutions where employees have to compile economic indicators and send to their executive team or board of directors. They couldn’t tell you what the numbers mean or what the implications are for their company, but they’ve ticked the box and can happily move on to something else. What’s worse is that often the executives and board of directors also tick the box that says they’ve seen it, and no one discusses what the numbers mean.

Maybe I should be happy that they’re at least doing this bare minimum, but it’s hard to watch when there’s so much more value that can be tapped.

Here are a few ways that our clients have used economic forecasts and scenarios to help ground their strategies:

An insurance company used our forecasts of economic growth, unemployment, insurance claims, insurance premiums and new policyholders to adapt their strategic plan immediately following the 2007 global financial crisis. They were able to brace for the economic slowdown in Barbados before it arrived by implementing revenue-enhancing and cost-control measures as a matter of urgency.

Our client in the global consumer goods industry was considering expanding their operations into the Caribbean. They hypothesised that the size of the middle class in the Caribbean was growing and could represent a lucrative market. We estimated the size of the middle class and forecasted its growth, which the company then used to select the best countries for investment.

Amidst all of the discussion about potential downgrades to the Barbados dollar and further austerity measures, our client in the financial services industry commissioned an economic scenario building exercise to investigate the impact of various options being debated in the press. The resulting discussion included senior leaders and was designed to ensure that each area within the organisation understood the likelihood and potential impact of each scenario.

There are many other ways that economic forecasts and scenarios can be used in companies. The most important thing to remember is that your organisation does not operate in a bubble; it is part of a wider network of interconnected companies, government institutions, international agencies and consumers. You affect and are affected by the decisions that each player makes. Staying on top of economic trends, and using them to your advantage, is just as important as staying on top of consumer trends.